Costco 2001 Annual Report Download - page 27

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COSTCO WHOLESALE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(dollars in thousands, except per share data)
Note 1—Summary of Significant Accounting Policies (Continued)
Marketing and Promotional Expenses
Costco’s policy is generally to limit marketing and promotional expenses to new warehouse openings;
occasional direct mail marketing to prospective new members and annual direct mail marketing programs
to existing members promoting selected merchandise. Marketing and promotional costs are expensed as
incurred.
Preopening Expenses
Preopening expenses related to new warehouses, major remodels/expansions, regional offices and
other startup operations are expensed as incurred.
Impairment of Long-Lived Assets
The Company periodically evaluates the realizability of long-lived assets based on expected future
cash flows. In accordance with Statement of Financial Accounting Standards (SFAS) No. 121, the
Company recorded pretax, non-cash charges of $15,231, $10,956 and $31,080 in fiscal 2001, 2000 and 1999,
respectively, reflecting its estimate of impairment relating principally to excess property and closed
warehouses. The charge reflects the difference between carrying value and fair value, which was based on
estimated market valuations for those assets whose carrying value was not recoverable through future cash
flows.
Reorganization of Canadian Administrative Operations
On January 17, 2001, the Company announced plans to reorganize and consolidate the administration
of its operations in Canada. Anticipated costs related to the reorganization are estimated to total $26,000
pre-tax ($15,600 after-tax, or $.03 per diluted share), expensed as incurred in fiscal 2001 and to be incurred
in the first quarter of fiscal 2002. During fiscal 2001 the Company expensed $19,000 related to this
reorganization and consolidation process. This charge is included in the provision for impaired assets and
closing costs.
Closing Costs
Warehouse closing costs incurred relate principally to the Company’s efforts to relocate certain
warehouses that were not otherwise impaired to larger and better-located facilities. As of September 2,
2001, the Company’s reserve for warehouse closing costs was $15,434, of which $6,538 related to lease
obligations. This compares to a reserve for warehouse closing costs of $11,762 at September 3,2000, of
which $8,887 related to lease obligations.
Income Taxes
The Company accounts for income taxes under the provisions of Statement of Financial Accounting
Standards (SFAS) No. 109, ‘‘Accounting for Income Taxes.’’ That standard requires companies to account
for deferred income taxes using the asset and liability method.
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